Healthy, Wealthy, or Wise? Issues in American Health Care Policy

holding down increases in fees, much less reducing them. Freedom to raise
fees gives hospitals the flexibility to shift costs.

If we do not succeed in reducing prices (or their rate of increase, as the
case may be), we face the prospect that an unbalanced stress on reducing
quantity of services and procedures could go too far, in particular because
DRG compensation makes inadequate allowance for the initial condition of
the patient or for the severity or complexity of the illness or procedure. In
fact, such a stress makes the M.D. more prone to raise fees, as the only way
of maintaining or increasing earnings. If we could restrain prices, there
would be less incentive for hospitals to reduce the quantity of services
rendered, inasmuch as quantity would then be the preferred, if not the only,
means of preserving or increasing earnings.

And then there are the veterans' hospitals--171 of them, costing $17
billion a year, most of them of poor quality, most of them scampering for
patients to fill their beds. They should be closed. There may be a few areas
where the presence of a veterans' hospital could preclude the need to build
another, if this hospital were open to the general public; but then it would
cease to be a veterans' hospital. Veterans' hospitals, like the Rural Electrification Administration, are evidence that bureaucracies live forever even
though their job is done.

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